KEY POINTS:

  • DeVos fires all 4 major loan servicers that handle federal student loans starting December 14, 2020

  • What to expect when receiving a welcome letter from your new servicer and what to do?

  • 10 year PSLF Borrowers: Download your payment history before End of 2020

  • Student Loan servicers chaos could extend student loan relief

  • Refi Student loans are trending lower

As we approach September 30, 2020, when the temporary 0% Federal student loan and forbearance period are both expected to end, here are some important updates:

(1) Secretary of Education Betsy DeVos fires all 4 major loan servicers that handle federal student loans starting December 14, 2020

This might be the biggest student loan change yet under the Trump administration as the Department of Education completely revamps how federal student loans are handled with these two main goals


  • Improved customer service
  • Holding servicers accountable for their performance in managing student federal loans 

Let’s face it, the big four servicers (Nelnet, Great Lakes, FedLoan, Navient) were awful to work with! But the real question is, will these five new companies do a better job? 

  1. Edfinancial Services LLC
  2. F.H. Cann & Associates LLC
  3. MAXIMUS Federal Services Inc.
  4. Missouri Higher Education Loan Authority (MOHELA)
  5. Texas Guaranteed Student Loan Corporation (Trellis Company)

Unlikely!  Aside from MOHELA and EdFinancial, many of these new servicers are small and inexperienced.  We honestly don’t know why DeVos even choose any of these companies, but we expect a lot of chaos and future lawsuits especially from Nelnet as CEO Jeff Noordhoek expressed:


“We are frustrated and disappointed by this decision and the lack of transparency in the process and will pursue every legal avenue available to ensure that students have the high-quality service they’ve come to expect from us.” 

(2) What to expect when receiving a welcome letter from your new servicer and what to do?

According to studentaid.gov, if your loans are transferred to a new servicer in late 2020 or early 2021, expect the following:


  1. You will receive an email or a letter from your old assigned servicer to inform you about the transfer.

  2. You will receive a welcome letter from the new servicer after the new servicer receives your loans, providing you with the new contact information and actions needed to take

  3. All of your loan information will be transferred from your assigned servicer to your new servicer, but you may only be able to see online information that covers the period since your new servicer took your loans over

  4. There should be NO change in the terms of your loans.

  5. Your previous loan servicer and new loan servicer will work together to make sure that all payments you make during the transfer process are credited to your loan account with the new servicer.

  6. Begin sending your loan payments to your new servicer. If you use a bank to make your payments, update the servicer new contact information

  7. Follow the new servicer’s instruction for creating an online account so you can keep track of your loan amount

(3) 10 year PSLF Borrowers: Download your payment history before End of 2020

Currently, the 10-year Public Service Loan forgiveness program (PSLF) is managed by Fedloan which is a branch of the Pennsylvania Higher Education Assistance Agency (PHEAA) which just signed a 2 year contract at the end of 2019.


It is currently unknown at the moment who will be responsible in the long term. Our bet will likely be the new MOHELA since they use the same COMPASS system to track payments as Fedloan.  What should you do in the meantime to protect yourself?


  1. Save a PDF or photos of all your payment history to-date as a safety net

  2. Submit a new Employer Certification form (ECF) by November 1 to get all your PSLF Payment counted to-date.

  3. Download all current information on studentaid.gov through the “My Aid” page by clicking on “My Aid Data” to get all your loan types, origination date, interest rate etc

Your PSLF payments will likely be stored in the National Students Loan Data System (NSLDS) record and shouldn’t be affected by the change in servicer. However, it is always better to save a hard copy 

(4) Student Loan Chaos + Lawsuit will likely force extension of student loan relief past September 2020

As you may have known, under the CARES Act, federal student loans were automatically placed under forbearance, along with 0% Interest until Sept 30, 2020. With the upcoming November election and now this chaotic transition to new and likely inexperienced servicers, we can easily see a possible extension of the CARES Act until things settle down. 

(5) Private Student Re-fi loans are trending lower

This is great news for members who want to refinance their current private student loan. We are happy to see that student Refi loan interests are getting lower. Current offers:


  • Earnest has the lowest variable rate  at 1.99%, with fixed at 3.19% (up to $300 Bonus)

  • Splash has the lowest fixed rate at 2.88%, also the lowest variable at 1.99%  (up to $1,000 Bonus)

Other lenders are not that far behind! To compare the latest rates, check out our List of Recommended Student Re-Fi 

Summary

We will likely get a ton of questions from our ODs on the Finance community on this change. Our advice is still the same at the moment. 


  • If you have federal student loans, enjoy the 0% federal interest and no payment on forbearance and re-assess in 9/2020. In the meantime, start saving the extra cash flow to max out retirement or within a taxable account for other goals. If you decide in September to aggressively pay off student debt, then you have the capital in your taxable account to tap.

  • If you are going for 10 year PSLF, enjoy the 6 month “free payment” that is applied to your forgiveness in the end. Hopefully the federal loan relief gets extended in your case.

  • If you have private re-fi loans, shop around to see if you can get a lower rate. Usually my rule of thumb is that if I can get 1% better, then it is worth the hassle to fill out the application. Remember that there is no limit to how many times you can apply or take advantage of the sign-up bonus

Overall, this is a very unique financial situation that we are at right now, so we'll take it as new laws unfold. While we advocate for aggressive student loan payment in the past, paying off those 0% federal student loans is mathematically low on our priorities vs investing for retirement or having a larger cash emergency fund, given the political climate. 


But it is entirely up to each individual, as long as the cash flow is going toward investing or paying off debt - there is no wrong answer. Just don’t spend your allocated monthly student loan payment on a new $630 Dyson V11 if your current vacuum works perfectly fine. 

 


Want to learn how to build your own portfolio? Check out  The Optometrist's Guide to Investing 101

Want to learn how to manage your student loan? Check out The Optometrist's Guide to Student Loans

Want to get a full blueprint on How to start? Buy our Book The Optometrist's Guide to Financial Freedom

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About DatBuiOD

Dr. Bui is a lead optometrist at the Apple Wellness Center in the heart of Silicon Valley. He has a deep passion for ocular disease and healthcare technology. He started his career with $230K of student debt and has been focusing on strategies on attacking this massive debt such as budgeting and personal finance, along with investing. He is a big advocate for passive index funding with a small portfolio toward technology stocks. Lastly, he wants to help all new doctors and high-earning professionals navigate toward wealth and financial independence.

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